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committees of the NM Legislature. The LFC does not assume responsibility for the accuracy of these reports

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F I S C A L I M P A C T R E P O R T

SPONSOR Silva

DATE TYPED 2/21/05

HB 424/aHTRC

SHORT TITLE

Gas & Special Fuels Requirements

SB

ANALYST Moser

APPROPRIATION

Appropriation Contained Estimated Additional Impact Recurring

or Non-Rec

Fund

Affected

FY05

FY06

FY05

FY06

See Narrative

None

(Parenthesis ( ) Indicate Expenditure Decreases)

REVENUE

Estimated Revenue

Subsequent

Years Impact

Recurring

or Non-Rec

Fund

Affected

FY05

FY06

GASOLINE

TAX:

None

none

See Fiscal Implications

Recurring

State Road Fund

(76.27%)

None

none

See Fiscal Implications

Recurring Municipal & County

Road Funds (10.38%)

None

none

See Fiscal Implications

Recurring

County Roads

(5.76%)

None

none

See Fiscal Implications

Recurring

Municipal Roads

(5.76%)

None

none

See Fiscal Implications

Recurring

Municipal Arterial

Program (Local Govt

Road Fund) (1.44%)

None

none

See Fiscal Implications

Recurring State Aviation Fund

(0.26%)

None

none

See Fiscal Implications

Recurring

Motorboat Fuel Fund

(State Park Boating

Facilities) (0.13%)

SPECIAL

FUELS TAX:

none

none

See Fiscal Implications

Recurring

State Road Fund

(90.48%)

none

none

See Fiscal Implications

Recurring

Local Governments

Road Fund (9.52%)

(Parenthesis ( ) Indicate Revenue Decreases)

House Bill 424/aHTRC -- Page 2

Duplicates/Conflicts with/Companion to/Relates to: SB-226 includes some similar provisions.

SOURCES OF INFORMATION

LFC Files

Responses Received From

Department of Transportation (DOT)

FOR THE REVENUE STABILIZATION AND TAX POLICY COMMITTTEE

SUMMARY

Synopsis of Amendment

The amendment establishes an effective date of January 1, 2006.

Synopsis of Original Bill

House Bill 424 establishes various “information return” reporting requirements for gasoline and

special fuel rack operators, wholesalers and retailers. Electronic filing of information returns, as

well as distributor tax returns, could be required so long as exceptions are allowed for small enti-

ties dealing in limited quantities of fuel. The Gasoline Tax, Special Fuels Supplier Tax, and Pe-

troleum Products Loading Fee are added to the list of tax programs for which large taxpayers

owing $25,000 or more per month must provide immediately available funds on or before the tax

due date. A number of other “technical clean-up” changes are made. A section-by-section de-

scription is included on page 3.

Significant Issues

•

The Governor’s “Gasoline Tax Working Group” was convened following the 2003 legis-

lative session to examine the issues of gasoline tax compliance, including the possibility

of moving to a rack operator (“tax at the rack”) reporting system. The Working Group is

comprised of representatives from industry (rack operators and distributors), state gov-

ernment agencies (TRD and DOT), tribal governments, and the Governor’s Office. The

consensus position reached by the group was that alternatives exist which would be pro-

ductive and more attractive than a “tax at the rack” system. The “tax at the rack” system

appeared to be unacceptable to distributors and tribal interests, presented significant

processing challenges to TRD in the processing of tax reimbursements to distributors,

and presented difficulties for rack operators in complying with numerous tribal tax impo-

sitions. The group concluded that an alternative involving electronic filing of informa-

tion returns and automated cross-checking for tax compliance would be a preferable ap-

proach to deal with the currently undetermined level of gasoline tax evasion.

•

The Taxation and Revenue Department is beginning the process of developing new fuel

tax processing systems pursuant to a 2003 appropriation. With updated technology and

database designs, the TRD should be in a position to make use of more detailed informa-

tion on fuel transactions to perform automated cross-checking for tax compliance. This

bill’s provisions relating to electronic filing requirements are crucial for TRD’s efforts in

this area, since the large volume of information required makes traditional key-entry data

capture impractical.

House Bill 424/aHTRC -- Page 3

FISCAL IMPLICATIONS

The amount of potential gasoline tax compliance gain associated with gasoline information re-

ports is not predictable since the extent of current noncompliance and tax evasion is unknown,

and since compliance gains would depend on the degree of effort expended by the Taxation &

Revenue Department. Other states have cited the Federal Highway Administration, suggesting

that from 3% to 5% of nationwide gasoline volume may escape state taxation. It is difficult to

assess whether tax gains in New Mexico would approximate this nationwide estimate. For every

1 percent increase in taxable gallons (i.e., for every 9.4 million additional gallons), the state

would realize an additional $1,600 thousand, allocated to the beneficiaries shown in the table

above.

The amount of potential special fuel tax compliance gain associated with special fuel informa-

tion reports is not predictable since the extent of current noncompliance and tax evasion is un-

known, and since compliance gains would depend on the degree of effort expended by the Taxa-

tion & Revenue Department. The compliance issues in the special fuels tax area are probably

different than for gasoline, and special fuel compliance may involve verification of appropriate

use by “off-highway users”. Thus special fuel compliance may be oriented more toward special

fuel users than special fuel distributors and retailers. For every 1 percent increase in taxable gal-

lons (i.e., for every 4.9 million additional gallons), the state would realize an additional $1 mil-

lion, allocated to the beneficiaries shown in the table above.

Revenue impacts are not shown for FY06 because it is unlikely TRD will be able to develop da-

tabases and cross-checking software to generate significant compliance leads before FY07 at the

earliest.

CONFLICT, DUPLICATION, COMPANIONSHIP, RELATIONSHIP

SB-226 includes some similar provisions.

OTHER SUBSTANTIVE ISSUES

Section 1: Institutes a new $50 penalty for failure to file an information return.

Section 2: The Taxation and Revenue Department’s (TRD) “confidentiality” statute is revised

to allow information sharing with other state jurisdictions regarding special fuel tax imposed un-

der the International Fuel Tax Agreement (IFTA). A clarification is made that TRD shall not

release information regarding whether or not a taxpayer has filed a tax return. TRD would be

allowed to release any written ruling on questions of evidence or procedure by a hearing officer

so long as the identity of the taxpayer that requested the ruling is kept confidential.

Section 3: The Gasoline Tax, Special Fuels Supplier Tax, and Petroleum Products Loading Fee

are added to the list of tax programs for which large taxpayers owing $25,000 or more per month

must provide immediately available funds on or before the tax due date.

Section 4: Gasoline retailers shall file information returns. Electronic filing of information re-

turns may be required if there is an exception allowed for small retailers.

Section 5: Rack operators shall file gasoline information returns. Electronic filing of informa-

tion returns may be required if there is an exception allowed for small rack operators.

Section 6: Gasoline distributors could be required to file tax returns electronically, so long as

there is an exception allowed for small distributors.

House Bill 424/aHTRC -- Page 4

Section 7: Gasoline wholesalers shall file gasoline information returns. Electronic filing of in-

formation returns may be required if there is an exception allowed for small wholesalers.

Section 8: Special fuel “retailer” and “wholesaler” are defined, and the definition of “special

fuel” is clarified to exclude gasoline, LPG, CNG, LNG and jet fuel. The special fuel “tax” defi-

nition is clarified to include tax paid to another (state) jurisdiction under a cooperative agreement

(IFTA).

Section 9: The requirement that special fuel “dealers” (retailers) not change the price of fuel in

inventory at the time of a tax rate change is eliminated.

Section 10: Special Fuel distributors could be required to file tax returns electronically, so long

as there is an exception allowed for small distributors.

Section 11: Special fuel user tax return filing provisions are rewritten to correspond to filing re-

quirements under the International Fuel Tax Agreement (IFTA). One

Section 12: Retailers shall file special fuel information returns. Electronic filing of information

returns may be required if there is an exception allowed for small retailers.

Section 13: Wholesalers shall file special fuel information returns. Electronic filing of informa-

tion returns may be required if there is an exception allowed for small wholesalers.

Section 14: Rack operators shall file special fuel information returns. Electronic filing of in-

formation returns may be required if there is an exception allowed for small rack operators.

Section 15: Allows the Secretary of the Taxation and Revenue Department to terminate coop-

erative or multistate agreements involving the taxation of special fuel.

EM/lg:yr